Understanding Personal Bankruptcy Exemptions
Making Sense of Personal Bankruptcy Exemptions
Declaring personal bankruptcy is often the right choice for those who are unable to pay their creditors because of certain circumstances in their life, such as medical bills, job loss, or a divorce. If you are thinking of declaring personal bankruptcy for these reasons, you may be wondering what it will cost you. Will you lose everything in the process?
Luckily, much of your property is exempt from being taken and sold during your bankruptcy proceedings. There are two types of exemptions: federal and state. While some states will only allow debtors to use state exemptions, other will let you choose whether state or federal exemptions will benefit you the most.
Before you decide to declare personal bankruptcy, you will need a bankruptcy attorney and a correct understanding of what exemptions actually are.
What Are The Different Types of Personal Bankruptcy Exemptions?
There are many different types of exemptions you may come across when declaring personal bankruptcy. Here are just a few.
- Homestead Exemption- The most common type of bankruptcy exemption is the homestead exemption. This exemption applies to the home where you live principally, and does not apply to second homes and vacation homes. Your specific state will determine how much this exemption is. For instance, in Alabama, the maximum claimed value of your homestead can not be more than $50,000. In Texas, though, there is no limit at all. Although your home may be exempt from your bankruptcy, this does not mean you are not still responsible for making your mortgage payments.
- Vehicle Exemption- Another typical exemption used while declaring personal bankruptcy is the vehicle exemption. This exemption allows debtors to keep one vehicle, as long as it is valued at a price below the state’s exemption requirement. Even if the price is about the requirement, though, you may still be able to keep the car if you pay the trustee the difference between the requirement and the value of the vehicle. Exemption requirements vary by state, and, like the homestead exemption, you must still make your monthly payments for the car if you wish to keep it.
- Other Exempted Property- Other types of personal property may also be exempt when you are declaring personal bankruptcy. For instance, your household appliances, clothing, life insurance, child support, alimony, retirement plans, and jewelry up to a particular value. Even expensive tools can be exempt if you must have them in order to continue your employment. For instance, a professional musician’s guitar would not be lost during bankruptcy, even if it was worth a lot of money. This type of ‘tools of the trade’ may also help you maintain a second vehicle if you use the second vehicle for business purposes.
There are many reasons you may be considering declaring personal bankruptcy. While this proceeding will help you gain a fresh start, you may be worried you will lose your assets during the process. With a basic understanding of the types of exemptions available to you, and the right personal bankruptcy attorney, you will have no problem keeping the certain possessions you need.